Question 1

A decrease in currency in circulation combined with an equal increase in savings account deposits would:

Accepted Answer

A)  increase both M1 and M2. 
B)  increase M1 but have no effect on M2. 
C)  decrease both M1 and M2. 
D)  decrease M1 but have no effect on M2. 
A)  increase both M1 and M2. 
B)  increase M1 but have no effect on M2. 
C)  decrease both M1 and M2. 
D)  decrease M1 but have no effect on M2.

Question 2

If a bank had demand deposits of $80 million and it faced a 25 percent required reserve ratio,it would be able to have a maximum amount of how many dollars worth of loans?

Accepted Answer

A)  $20 million 
B)  $40 million 
C)  $60 million 
D)  $80 million 
A)  $20 million 
B)  $40 million 
C)  $60 million 
D)  $80 million

Question 3

Uncertainty may cause banks to hold larger excess reserves.Other things being constant,this will:

Accepted Answer

A)  have no effect on the volume of loans or the money supply. 
B)  tend to reduce both the volume of loans and the money supply. 
C)  tend to increase both the volume of loans and the money supply. 
D)  tend to increase the volume of loans but reduce the money supply. 
A)  have no effect on the volume of loans or the money supply. 
B)  tend to reduce both the volume of loans and the money supply. 
C)  tend to increase both the volume of loans and the money supply. 
D)  tend to increase the volume of loans but reduce the money supply.

Question 4

The predominant liability item for most banks is:

Accepted Answer

A)  deposits. 
B)  bonds. 
C)  loans. 
D)  federal cash reserves. 
A)  deposits. 
B)  bonds. 
C)  loans. 
D)  federal cash reserves.

Question 5

In general,a bank that held excess reserves would earn lower profits as a result.

Accepted Answer

A) True 
 B)False

Question 6

The size of the effect of a given deposit of cash into a demand deposit account on the money supply is smaller:

Accepted Answer

A)  the greater the fraction of money people want to hold as currency and the greater the fraction of deposits banks want to hold as excess reserves. 
B)  the greater the fraction of money people want to hold as currency and the smaller the fraction of deposits banks want to hold as excess reserves. 
C)  the smaller the fraction of money people want to hold as currency and the greater the fraction of deposits banks want to hold as excess reserves. 
D)  the smaller the fraction of money people want to hold as currency and the smaller the fraction of deposits banks want to hold as excess reserves. 
A)  the greater the fraction of money people want to hold as currency and the greater the fraction of deposits banks want to hold as excess reserves. 
B)  the greater the fraction of money people want to hold as currency and the smaller the fraction of deposits banks want to hold as excess reserves. 
C)  the smaller the fraction of money people want to hold as currency and the greater the fraction of deposits banks want to hold as excess reserves. 
D)  the smaller the fraction of money people want to hold as currency and the smaller the fraction of deposits banks want to hold as excess reserves.

Question 7

If a bank has $1 million in demand deposits,$400,000 in reserves,and faces a 30 percent reserve requirement,the amount of money that a bank could initially create by loaning out their excess reserves is:

Accepted Answer

A)  $600,000. 
B)  $400,000. 
C)  $300,000. 
D)  $100,000. 
A)  $600,000. 
B)  $400,000. 
C)  $300,000. 
D)  $100,000.

Question 8

The size of the effect of a given deposit of cash into a demand deposit account on the money supply is greater:

Accepted Answer

A)  the greater the fraction of money people want to hold as currency and the greater the fraction of deposits banks want to hold as excess reserves. 
B)  the greater the fraction of money people want to hold as currency and the smaller the fraction of deposits banks want to hold as excess reserves. 
C)  the smaller the fraction of money people want to hold as currency and the greater the fraction of deposits banks want to hold as excess reserves. 
D)  the smaller the fraction of money people want to hold as currency and the smaller the fraction of deposits banks want to hold as excess reserves. 
A)  the greater the fraction of money people want to hold as currency and the greater the fraction of deposits banks want to hold as excess reserves. 
B)  the greater the fraction of money people want to hold as currency and the smaller the fraction of deposits banks want to hold as excess reserves. 
C)  the smaller the fraction of money people want to hold as currency and the greater the fraction of deposits banks want to hold as excess reserves. 
D)  the smaller the fraction of money people want to hold as currency and the smaller the fraction of deposits banks want to hold as excess reserves.

Question 9

A decrease in the excess reserves banks want to hold,together with people depositing currency into their demand deposit accounts,would:

Accepted Answer

A)  increase the money supply. 
B)  decrease the money supply. 
C)  leave the money supply unchanged. 
D)  have an indeterminate effect on the money supply. 
A)  increase the money supply. 
B)  decrease the money supply. 
C)  leave the money supply unchanged. 
D)  have an indeterminate effect on the money supply.

Question 10

The higher the interest rate paid on certificates of deposit and other nontransaction deposits,other things being equal,the less people would be expected to hold in demand deposits.

Accepted Answer

A) True 
 B)False

Question 11

Bank runs ____ bank reserves and ____ the money supply.

Accepted Answer

A)  decrease; decrease 
B)  decrease; increase 
C)  increase; increase 
D)  increase; decrease 
A)  decrease; decrease 
B)  decrease; increase 
C)  increase; increase 
D)  increase; decrease

Question 12

Paper money in the U.S.is:

Accepted Answer

A)  fiat money. 
B)  more than half of M2. 
C)  only partially backed by gold and silver in Fort Knox. 
D)  convertible into specie (gold or silver) at the holder's request. 
A)  fiat money. 
B)  more than half of M2. 
C)  only partially backed by gold and silver in Fort Knox. 
D)  convertible into specie (gold or silver) at the holder's request.

Question 13

Which of the following would most likely reduce the number of bank failures?

Accepted Answer

A)  an increase in the number of small banks 
B)  tighter restrictions on interstate banking 
C)  creating a system of deposit insurance 
D)  encouraging banks to make more risky loans 
A)  an increase in the number of small banks 
B)  tighter restrictions on interstate banking 
C)  creating a system of deposit insurance 
D)  encouraging banks to make more risky loans

Question 14

On a certain date the banking system had $2 billion in excess reserves.The legally required reserve ratio was 12.5 percent.Potentially,if these funds were fully loaned out,the banking system as a whole could increase the money supply by a maximum of:

Accepted Answer

A)  $0.25 billion. 
B)  $2.5 billion. 
C)  $12.5 billion. 
D)  $16 billion 
A)  $0.25 billion. 
B)  $2.5 billion. 
C)  $12.5 billion. 
D)  $16 billion

Question 15

Which of the following guarantees the deposits in almost all banks up to a limit of $250,000?

Accepted Answer

A)  the Federal Reserve 
B)  the FDIC 
C)  the U.S. Treasury 
D)  Bank of America Corporation 
A)  the Federal Reserve 
B)  the FDIC 
C)  the U.S. Treasury 
D)  Bank of America Corporation

Question 16

A depositor cannot directly write checks against:

Accepted Answer

A)  demand deposits. 
B)  transaction deposits. 
C)  nontransaction deposits. 
D)  money market mutual fund accounts. 
A)  demand deposits. 
B)  transaction deposits. 
C)  nontransaction deposits. 
D)  money market mutual fund accounts.

Question 17

Barter system is less desirable than using money for exchange because:

Accepted Answer

A)  it is a more inefficient and a time-consuming process. 
B)  gold and silver are risky and inconvenient to transport. 
C)  it tends to promote inflation. 
D)  gold and silver are relatively scarcer than other commodities. 
A)  it is a more inefficient and a time-consuming process. 
B)  gold and silver are risky and inconvenient to transport. 
C)  it tends to promote inflation. 
D)  gold and silver are relatively scarcer than other commodities.

Question 18

The more widely held and accepted credit cards are,the more money people would be expected to hold in the form of currency.

Accepted Answer

A) True 
 B)False

Question 19

How is money destroyed in the banking system?

Accepted Answer

The process of money creation can be rev

Question 20

A bank receives a demand deposit of $5,000.The bank loans out $3,500 of this deposit and increases its excess reserves by $500.What is the required reserve ratio?

Accepted Answer

A)  10% 
B)  20% 
C)  40% 
D)  60% 
A)  10% 
B)  20% 
C)  40% 
D)  60%

Exam 25: Monetary Institutions

A decrease in currency in circulation combined with an equal increase in savings account deposits would:

If a bank had demand deposits of $80 million and it faced a 25 percent required reserve ratio,it would be able to have a maximum amount of how many dollars worth of loans?

Uncertainty may cause banks to hold larger excess reserves.Other things being constant,this will:

The predominant liability item for most banks is:

In general,a bank that held excess reserves would earn lower profits as a result.

The size of the effect of a given deposit of cash into a demand deposit account on the money supply is smaller:

If a bank has $1 million in demand deposits,$400,000 in reserves,and faces a 30 percent reserve requirement,the amount of money that a bank could initially create by loaning out their excess reserves is:

The size of the effect of a given deposit of cash into a demand deposit account on the money supply is greater:

A decrease in the excess reserves banks want to hold,together with people depositing currency into their demand deposit accounts,would:

The higher the interest rate paid on certificates of deposit and other nontransaction deposits,other things being equal,the less people would be expected to hold in demand deposits.

Bank runs ____ bank reserves and ____ the money supply.

Paper money in the U.S.is:

Which of the following would most likely reduce the number of bank failures?

On a certain date the banking system had $2 billion in excess reserves.The legally required reserve ratio was 12.5 percent.Potentially,if these funds were fully loaned out,the banking system as a whole could increase the money supply by a maximum of:

Which of the following guarantees the deposits in almost all banks up to a limit of $250,000?

A depositor cannot directly write checks against:

Barter system is less desirable than using money for exchange because:

The more widely held and accepted credit cards are,the more money people would be expected to hold in the form of currency.

How is money destroyed in the banking system?

A bank receives a demand deposit of $5,000.The bank loans out $3,500 of this deposit and increases its excess reserves by $500.What is the required reserve ratio?

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Trade

International Finance

Filters

Bank runs bank reserves and the money supply.